Introduction
Strategic risk management is becoming more important due to recent
events in the world. Business failures, reorganizations, takeovers, mergers,
and acquisitions are some of the events that may indicate either consequences
of poor risk management or actions to address risk concerns. According to
Damitha (2017), rapid technological innovations has created changes in many
aspects of life including economics, geopolitics, and demographics, which in
turn, also creates new challenges for organizations. In the search for new
opportunities, organizations are also faced with a very wide range of risks
that may affect the outcome of their operations. One of their main challenges is how to
effectively identify and manage those risks. Failure to manage risk effectively
could lead to corporate scandals such as that of Enron, Parmalat, WorldCom, and
Maxwell Group. To avoid that, companies are considering strategic risk
management as an essential tool that constitutes a new lens through which
corporate strategy development are perceived.
In a related development, JD Sports Fashion Plc, more commonly known as
JD Sports or JD, is a UK company quoted on the London Stock Exchange. The
company has shops throughout the United Kingdom, Europe, United States, Asia,
New Zealand, and Australia. The company has been under investigation by the Competition
and Markets Authority (CMA) for the acquisition of Footasylum Plc. The concern
over JD Sports’ Footasylum deal was narrated by Carline Wadham in a fashion
business magazine called Drapers, published on 2nd
September 2021 as follows.
“In March 2019, it was announced that JD
Sports was buying Footasylum for £90.1m. However, the acquisition set alarm
bells ringing for the Competition and Markets Authority (CMA), which argued in October 2019 that it could lead to higher prices, worse
choice and poorer service for shoppers. Then, on 6 May 2020 the CMA formally blocked JD Sports’ purchase
of Footasylum, concluding that the transaction would lead to a
“substantial lessening of competition nationally”. In November 2020 the Competition Appeal Tribunal quashed the CMA’s decision
to block the deal.
In its latest decision, the CMA has said that
the merger could result in a worse deal for Footasylum shoppers throughout the
UK. This means customers could find themselves facing higher prices, fewer
discounts and less choice of products in store. It could also result in the
merged company investing less in improvements to customer service.
As a result, the authority said that
requiring JD Sports to sell Footasylum, “may be the only way of addressing
these competition concerns”.
Kip Meek, CMA inquiry chair, said: “Since our
original inquiry, we have gathered a significant amount of additional evidence,
including on the impact of coronavirus, and we still have concerns about JD
Sports’ takeover of Footasylum. This deal would see Footasylum bought by its
closest competitor and, as a result, shoppers could face higher prices, less
choice and a worse shopping experience overall.
“While many stores were closed during
lockdown, online sales in this market have been stronger than ever, and revenue
from in-store sales is rebounding as people return to the high street.
“JD Sports, Footasylum and others in the
sector now have the opportunity to give us their views – on both our
provisional decision and our suggested remedy.”
In response, JD Sports said that the CMA has
not considered the extent to which the direct-to-consumer (DTC) businesses of
Nike and Adidas have grown during the pandemic.
It said: “One of the CMA’s primary tasks in
the remittal process was to consider the impact that Covid-19 has had on Nike’s
and Adidas’s DTC strategies. A specific way of measuring this change is to look
at the ratio of the brands’ DTC sales to the sales they make to third-party
retailers on a wholesale basis.”
JD Sports said the pandemic has prompted a “structural shift in
favour of online shopping, [which has] has empowered and accelerated Nike’s and
Adidas’s DTC strategies”: “In these circumstances, [it] struggles to understand
how the merger could result in a ‘substantial lessening of competition’ in a
market that is increasingly being shaped by the brands’ DTC strategies.
“In particular, the group does not understand how the CMA can
so clearly agree with JD that it would have no incentive to deteriorate the
price, quality, range and service offered at JD but then still find, despite
all the market dynamics, that JD would find it commercially rational to worsen
the Footasylum retail offer for a period of two years or more.”
Peter Cowgill, executive chairman of JD Sports Fashion, said:
“We have made compelling submissions on the committed positioning of the
global brands towards DTC and the consequent impact on an extremely competitive
marketplace. I am perplexed and again disappointed that these have been
rejected.
“I am
not sure what further evidence the CMA needs to appreciate the extent of this
dynamic change that has been substantially accelerated by Covid-19.
“If the CMA’s mission is indeed
to “make markets work well in the interests of consumers, businesses,
and the economy”, then I urge the CMA to reconsider its position before
making its final determination. This transaction will simply not
“lessen” competition, let alone “substantially”.
“On the contrary, clearance would enable
JD to invest in Footasylum and work with its management team to increase the
quality, range and choice of products available to its consumers, which will
bring wider benefits to a UK high street decimated by high-profile closures.””
(Wadham,
2021)
Question
Undertake an investigation on JD Sports Fashion Plc
to evaluate their adopted risk management process, risk governance strategy and
overall risk management systems over the period of 2016-2020.
Present all your critical analysis and results in a
clear way highlighting any areas of concern and your recommendations.
Words limit = 2000 words (excluding tables and any
computations; preliminary pages such as table of contents, abstracts, and
introduction; and references).
Last Completed Projects
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